(Ignore income taxes in this problem.) Bugle's Bagel Bakery is investigating the purchase of a new bagel making machine. This machine would provide an annual operating cost savings of $3,650 for each of the next 4 years. In addition, this new machine would allow the production of one new type of bagel which would result in selling 1,500 dozen more bagels each year. The company earns a contribution margin of $0.90 on each dozen bagels sold. The purchase price of this machine is $13,450 and it will have a 4 year useful life. Bugle's discount rate is 14%.
-The total annual cash inflow from this machine for capital budgeting purposes is:

Question

Quizplus · Accepted Answer

The annual cash inflow from the machine is the sum of the revenue generated ($300 x 10 x 12 = $36,000), less the operating expenses ($100 x 10 x 12 = $12,000) and the cost of the machine ($19,000). Therefore, the total annual cash inflow is $36,000 - $12,000 - $19,000 = $5,000. The correct answer is D.

(Ignore Income Taxes in This Problem